The year of the Wood Snake was moderate for China stocks and ETFs, with iShares China Large-Cap ETF FXI gaining about 9.4% over the past year (as of Feb. 13, 2026), with most gains coming from 2025.
China’s benchmark Shanghai Composite Index rose 18% in 2025, beating the S&P 500’s 16.4% gain. So far this year, the market is in the red mainly due to the prolonged property market crisis, weak January manufacturing data and subdued economic growth momentum.
This makes it important to judge how Chinese equities and ETFs will perform in the New Year – the year of the Horse. Analysts are predicting a strong year for Chinese equities in 2026, with gains as high as 20% by the year-end, as quoted on Devere.
Economic Growth Matches Beijing’s Target
China’s economy grew 4.5% year over year in Q4 2025, slowing from 4.8% in Q3 and marking the weakest rise in three years, per Trading Economics.Still, full-year growth reached 5%, in line with Beijing’s target and unchanged from 2024, aided by a record-high trade surplus as strong exports to non-U.S. markets helped weather tariff pressure and weaker fixed investment.
Vanguard expects GDP growth to be around 4.5% in 2026, with tariff pressure partly made up by a recoil in manufacturing and infrastructure investment. However, Goldman Sachs Research expects China's real GDP to grow by 4.8% in 2026, as the bank expects the country’s current account surplus to rise to 4.2% of GDP this year from 3.6% in 2025.
Stronger Regulation to Support Market Stability
Chinese policymakers are signaling a shift toward sustainable growth rather than speculative excess. Authorities are introducing tighter enforcement measures in order to moderate market momentum and strengthen long-term investor confidence, per Reuters.
The China Securities Regulatory Commission (CSRC) recently intensified its crackdown on speculative activity after the Shanghai Composite Index reached 10-year highs, fueled by leveraged trading. Per analysts, these measures indicate the growing importance of China’s financial sector as the country attempts to attract global investment amid geopolitical challenges, the same Reuters article noted.
AI Momentum
The release of Deepseek’s low-cost large language model in January 2025 sent a shockwave throughout the technology world. China seeks to be a 90% AI economy by 2030, per Carnegie Endowment for International Peace.
China’s monthly token use in AI models is forecast to be in a range of 220-670Qa from 2025 to 2030, compared to 100-175Qa in the United States, per IQVIA, as quoted on Franklin Templeton. China-focused tech funds like KraneShares CSI China Internet ETF KWEB and Invesco China Technology ETF CQQQ should be in focus.
Compelling Valuation & Likely Rise in Equity Flows
The P/E ratio of the ETF FXI stands at 12.60X versus 28.77X possessed by iShares Core S&P 500 ETF IVV, indicating a much cheaper valuation than the U.S. market. iShares MSCI China A ETF CNYA trades at a P/E ratio of 18.31X. iShares MSCI China Multisector Tech ETF TCHI trades at a P/E of 19.16X.
Domestic equity flows are expected to rise, as insurers are getting a lot of inflow due to low yields, and they are likely to allocate to the equity market, while retail investors are shifting some savings from the property market to stocks, per Robeco investment firm. Goldman Sachs expects Chinese equities to attract about $500 billion in fresh domestic capital this year, helped by rising corporate earnings, as quoted on Caixin Global.
Soft Spots
The economy’s domestic consumption has been subdued. China's retail sales rose 0.9% year on year in December 2025, slowing from a 1.3% uptick and missing market expectations of a 1.2% gain. It marked the weakest growth since December 2022, per Trading Economics. Rebalancing toward consumption and social welfare spending is likely to be gradual, per Vanguard.U.S. trade tensions are added headwinds.
China’s property sector weakness has long been a key concern for the economy. Primary property sales are likely to fall 10-14% in 2026, due to an oversupplied market, putting pressure on prices, per S&P Global. Completed inventory of 766 million square meters at end-2025 was 1.6% higher than in December 2024, and 45% higher than the 10-year average prior to the downturn, the same source pointed out.
Bottom Line
The outlook for Chinese stocks and ETFs is moderate-to-upbeat for 2026.ETFs may benefit from attractive valuations, improving equity flows and AI-driven growth momentum, though long-term confidence in the Chinese market hinges on the regulatory stability. However, property sector stress, weak consumption and geopolitical risks suggest that the gains may come with volatility.
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iShares China Large-Cap ETF (FXI): ETF Research Reports Invesco China Technology ETF (CQQQ): ETF Research Reports KraneShares CSI China Internet ETF (KWEB): ETF Research Reports iShares Core S&P 500 ETF (IVV): ETF Research Reports iShares MSCI China A ETF (CNYA): ETF Research Reports iShares MSCI China Multisector Tech ETF (TCHI): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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